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Is the financial repression in China dangerous? – Natixis

According to Patrick Artus, Research Analyst at Natixis, there is financial repression in China, since: there are major restrictions on capital outflows, interest rates are considerably lower than the growth rate and the “menu” of financial assets available for investing savings is limited.

Key Quotes

“This means that a considerable seignorage is levied in China by the Chinese government and, above all, by Chinese banks on savers, which makes it possible to maintain an extremely low cost of capital.”

“It favours capital accumulation and growth in China, but leads to:

  • A risk of excessive debt;
  • Inefficient investments being carried out with an abnormally high capital intensity;
  • A “waste of savings” at a worldwide level.”

Conclusion: A problem also for the rest of the world

The financial repression in China boosts capital accumulation and growth in the country, but leads to excessive investment, inefficient use of savings and excessive debt. But the financial repression in China also has negative effects on the rest of the world: if there was no obstacle to capital outflows from China, Chinese savings could finance efficient investment projects in the rest of the world instead of financing projects with a low marginal productivity in China.”

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